Copper-nickel? The data say it’s bad economics

Posted
Wednesday, September 12, 2018 5:46 pm

Marshall Helmberger

The ongoing debate about the pros and cons of copper-nickel mining near Ely has been cast by many as the stereotypical clash between jobs and the environment. It’s a familiar means of framing the issue, but I believe it overlooks a critical component— namely that the fundamental argument against copper-nickel mining near Ely is economic, not environmental.

By saying so, I don’t mean to give short shrift to the environmental concerns, which are significant. Anyone who believes that the environmental impacts of a copper-nickel mine will bear any relationship to the effects of Ely’s Pioneer Mine, or even modern-day taconite mining, is badly misinformed. Due to the geological differences, sulfide-based ore mining is inherently far riskier, and those risks are heightened dramatically in a water-rich environment. Given the incalculable value of the wilderness resource that a copper-nickel mine in the Rainy River watershed puts at risk, it can credibly be argued that this is the worst place on the planet for such a mine.

Supporters argue that the risks are worth it for the economic boost they believe such a mine would bring.

Yet there is a remarkable amount of economic data and research, as we reported on our front page last week, that suggests that a new mine will not bring the economic benefits that its supporters believe. Ely, over the past few decades, has made considerable progress pursuing amenity-based economic development, which is a well-established and widely-pursued model for economic growth in the U.S. Far from boosting the economy, there is considerable economic research, including the study recently produced by a pair of Harvard economists, that predicts a new mine will simply disrupt the progress Ely has made and leave the local economy weaker overall within just a few years.

The evidence for Ely’s recent success is overwhelming, and it isn’t just limited to Ely. In communities along the edge of the Boundary Waters and the Superior National Forest, we have seen significantly higher rates of in-migration of residents from other areas than most other non-metro counties in Minnesota. High percentages of those migrants are professional and well-educated, and bring relatively high incomes, either through ongoing earnings or investments, that are spent in the regional economy. Because many of these new residents, who we can call “lifestyle residents” are not tied to a location for their employment, they are highly mobile. If the qualities that draw lifestyle residents to Ely are threatened, some will choose to relocate. Many more will simply look elsewhere without ever considering our area.

Keep in mind, we’re not talking about relatively low-paying tourism jobs versus mining employment. Tourism jobs are a nice bonus, but I’ve never viewed them as the basis for a vibrant, year-round economy. The jobs lost from short-circuiting Ely’s amenity-based economic activity include the often high-paying professions that these new residents bring with them, along with jobs that provide support services for these new residents, including sectors like construction, real estate, finance, insurance, building supplies, home furnishings, and some kinds of light manufacturing.

These are solidly middle-class jobs we’re talking about here. This isn’t a question of mining jobs versus tourism jobs. That’s a false argument made by people who should know better.

The recent Harvard study used a standard economic model to examine 72 different economic scenarios with mining, and without. In all but three, the Ely area economy did better without mining than with it.

And the Harvard study overlooked one very important factor. In its analysis, the economists looked at a 20-year time horizon assuming that a mine is opened this year. And it found that in the first few years the added income from mine construction and initial mining would lead to more jobs and local income in the area economy. But it also found that over five-to-ten years, the disappearance of some existing lifestyle residents, who would choose to relocate, along with a modest reduction in the in-migration of new lifestyle residents, was significant enough to leave the Ely area economy worse off in terms of jobs and local income.

I believe the negative economic impacts of mining would actually be much worse, because we all know a new Twin Metals mine won’t be built this year. The earliest such a mine could open is a decade from now, and that’s wildly optimistic.

That means that the negative effects from a slowing of in-migration of new lifestyle residents and the gradual departure of some who already live here, will begin now, while the temporary (and still highly speculative) economic benefits of a possible new mine won’t be achieved for 10-20 years.

That means the economic costs to Ely’s economy will have 10-20 years to accumulate before the short-term boost a mine might bring even occurs. Under this more realistic scenario, Ely’s economy begins to see the downsides of mining whether or not a mine is ever built. And that means that Ely, in the end, never sees an economic upside (not even a temporary one) from a new mine.

Those who doubt the impact of lifestyle residents on the Ely economy should take a look at the report we issued last August, “Ely’s golden goose: how the townships drive Ely’s economy,” which clearly demonstrated that the townships (where most lifestyle residents reside) provide the lion’s share of local spending that maintains the Ely area economy.

The divide within the community over this issue further hampers Ely’s economic progress. While some people don’t mind conflict, many do, and the conflict within the community over this issue, which will now carry on for decades, is guaranteed to cost the area economy. Under the amenity-based model of economic development, economic progress is made through the individual decisions of thousands of people who choose to relocate to a community that offers them the lifestyle they desire. If Ely is seen as a community that’s hostile to new residents, or as a place where the amenities these potential new residents seek are under threat from industrial development and pollution, most will simply choose to go elsewhere.

There are dozens of economic studies to back up these arguments, and I cited several last week. This week, I’m including a bibliography below in case readers want to check out some of the research themselves.

I recognize those who support the Twin Metals project may have a different view. But where are the economic studies to show that copper-nickel mining will actually benefit Ely’s economy? The Skurla study, produced by UMD’s Labovitz School in 2012, which is touted all the time by copper-nickel mining boosters, is highly outdated. Besides, 90-percent of the economic impact it projected came from anticipated development in the taconite industry. It attributed barely 600 direct jobs to non-ferrous forms of mining, and none of those new jobs have arrived. Nor have the 5,000 new taconite jobs that the study predicted. There are no more workers in the taconite industry today than there were when the study was produced. If anything, the Skurla study was just another example of how frequently hopes are dashed on the Mesabi Iron Range because its mining dependent economy relies on hugely expensive and risky investments in production capacity for commodities that fluctuate wildly in price.

The bottom line is this. If there were economic data to suggest that a new copper-nickel mine near Ely would create long-term economic prosperity above and beyond the current economic model, one could at least argue about whether the environmental and related economic risks associated with the project were justifiable. But when the economic data points to just the opposite, there is no longer an argument, just stubborn refusal to face the facts. For Ely political leaders to continue to push for a mine in the face of such evidence is questionable. While the community spends the next decades fighting over it, potential economic progress will be lost. And a new mine risks killing Ely’s sustainable golden goose for short-term benefit at most, while leaving the community worse off economically than it is today. Smart political leaders would recognize there’s little to gain, and far too much to lose in the pursuit of copper-nickel mining at the end of the road.

Comments

Wow! Lifestyle Residents! Couldn't find it in a thesaurus! You had search long and hard to come up with that one. Those LR's though, mostly do not have children and grand children moving up here, going to school, involved in the community ...

Marshall, I have asked you before to please not threaten us permanent locals that the LR's will avoid the area or move away. This is not and will not be a threat to me. I want people to move up here because they love the area for all that it offers and not because it offers peace and tranquility because they don't have those ...let's see, how did they refer to us before, four wheeling, drunks around their homes. If even one of the LR's ask me, I will personally help them move and I'm sure I will find numerous volunteers to help.

You also have to remember that the delayed boom to the economy is because the LR's are fighting to delay it so they can have their privacy. If they hadn't the Twin Metals project would be even further along.

Lastly, please don't shove any opinion from someone from Harvard at us locals and I won't offer my opinion of what I think of their work!

Friday, September 14

Reid Carron

Great piece, Marshall. You, like a good teacher, persist in the hope that facts and logic will change people's minds. As the prior comment demonstrates, it's a long twilight struggle. Hang in there.

But don't overlook the promise made ... lots of Ivy League schools to pick from ... as well as others across the country. I realize they are nothing but educated students of rational study and discovery, but really ...

The peace and quiet might be worth the overlooking of Harvard.

Friday, September 14

Steve Jacobson

I didn't say pack sackers - I'll be honest I kind of thought about it but would never say it. That would almost like someone thinking that he is smart and miners are four wheeling, beer drinking idiots. But, again, I don't think anyone up here would be arrogant enough to actually say something like that would they?

Friday, September 14

Scott Atwater

"Because many of these new residents, who we can call “lifestyle residents” are not tied to a location for their employment, they are highly mobile."

Yes indeed, they are not tied to location for their employment and are highly mobile because of their dependence on rare metals. So the theme seems to be - perpetuate a need for rare metals, while condemning their procurement.

"Why hello there, Wyatt. It appears my hypocrisy knows no bounds."

Saturday, September 15

Reid Carron

It’s so much easier to focus on a stupid remark by someone who was reacting to relentless vile slanders than to really think about the massive surface destruction of the Superior National Forest and the pollution of the Boundary Waters that would be the result of the giant industrial mining district that the mining companies and their corrupt political allies are striving toward. It’s so much easier to post a cute and demonstrably wrong quip about “rare metals” and to glibly throw out “hypocrisy” than to acknowledge the economic disaster that copper mining in the Boundary Waters watershed would cause to countless businesses and property owners across northeastern Minnesota. The commenter who wants people to love the area for all it offers is apparently in denial about the loss of what the area offers if copper mining is permitted. And it’s not hypocritical to do a cost/benefit analysis and reject the completely bogus and mindless claim that current technological gimmicks and future technological developments depend on sulfide-ore mining in the Boundary Waters watershed. Hypocrisy? That would be claiming that one’s pro-copper-mining position is based on what’s good for the community when in fact it’s based on resentment of and hostility to people who have done the hard work of figuring out the permanent and irreparable damage that copper mining brings with it and who aren’t afraid to say so. The world is awash in copper. The Superior National Forest, including the Boundary Waters, is irreplaceable.

Saturday, September 15

Scott Atwater

Although long winded, a clear case of NIMBY. Rather than a keyboard and monitor, perhaps a keyboard and mirror would be more useful.

Saturday, September 15

Reid Carron

Gee, it’s a big back yard. Opposition to sulfide-ore mining in the Boundary Waters watershed comes from enormous numbers of people across the United States. Trite right-wing insults are a place to hide from facts and analysis.

Come on... I see comments long on insults, but short on the data I challenged mining supporters to produce. Are insults going to be your substitute for rational argument? Let's elevate the conservation!

Sunday, September 16

Scott Atwater

The nature of mining is that the economic impact, as well as the ore body mined, is finite. Exactly how that economic impact develops, or how it is managed, is an academic exercise at best. I see little to argue about here.

In my opinion the environmental and moral questions are far more important and relevant. Rest assured, the ore body will be mined at some point in the future. It is inevitable. Everyone should be asking themselves two things. Is the MPCA up to the task of protecting the environment, and is it ethical to gobble up resources produced by countries that have little or no environmental standards to support our lifestyle while sitting on one of the richest deposits known?

Sunday, September 16

Reid Carron

Sulfide-ore copper mining in the Boundary Waters watershed is not inevitable. I am confident that ultimately the people of the U.S. will not allow it to happen. They will do that by electing politicians who, unlike the current regime, have social values, are not corrupt, and can do the math. The economic impact of mining on communities has been on full display in Minnesota for many decades, so judging the impact of sulfide-ore copper mining on Boundary Waters region communities can be based on experience as much as academic analysis. I have been a resident of Minnesota since 1973. Two things never change: the Vikings don’t win the Super Bowl, and the Iron Range cries for help from the state and federal governments because its economic problems are so serious. Dr. Tom Power, an economist who taught at the University of Montana for 40 years, with a focus on rural extraction economies, famously said “I’m still looking for a prosperous mining town.” The reasons for this are widely known—destruction and pollution of the natural environment so that the community becomes unattractive, mining company capture of the political process to the detriment of other, diverse industries (and of the environment—the taconite industry controls Minnesota water pollution enforcement, or lack thereof, thanks to Bakk, Tomassoni, and their ilk), and mining overwhelms infrastructure (see the Highway 53 re-route), among other things. The assertion that the Duluth Complex is a rich resource is belied by geology and history—if it were rich, it would have been mined long ago. Indeed, the deposit is quite poor, with the copper and other minerals at substantially less than one percent. Consequently, mining would generate massive amounts of waste, only part of which would be returned to mine pits or tunnels, and that only after many years. The poor quality of the deposit would be a further driver of economic destruction, because such mines can be profitable only if automated to the nth degree. Any mining executive willing to tell the truth will admit that few local jobs would result from turning the southern edge of the Boundary Waters into something like the Iron Range. History proves it—taconite mines produce the same amount of ore with a third of the workers of 50 years ago, and technology is driving employment down-down-down. So, the mines would produce few local jobs, but would eviscerate the current healthy Wilderness-edge economy. As for morality, that argument might have some weight if a mining company would stop mining in Zambia or Indonesia, etc., if it is allowed to mine the Duluth Complex. But no mining company will agree to that. In yesterday’s Strib, Lee Schaefer had a great column about the 2008 financial crisis. He wrote in part: “It’s a problem often called ‘moral hazard,’ a term that was talked about a lot just after the financial crisis but not as much lately. . . . To get the idea, just imagine what would happen if you had to decide how much risk to take while fully aware that somebody else would bear the losses if things don’t pan out. Sounds a little like “heads I win, tails you lose.” “Moral hazard” fits the conduct of the mining companies and their enablers. If mining were permitted, and the inevitable massive surface destruction and pollution that it causes destroy the livelihoods, property values, and communities of thousands of people across northeastern Minnesota—well, that’s their problem. The mining company makes out like a bandit—heads I win, tails you lose.

Monday, September 17

Steve Jacobson

First of all I don't necessarily think our politicians are corrupt. I believe that they are doing exactly what the majority of voters want. The next election and the previous couple of elections proved it. Michelle Lee and Painter both ran their campaigns based on "anti" mining and both lost by a pretty wide margin. The last election for 5B was run on a mining/anti mining platform and you know who won. I did not nor will I ever vote for Tom Bakk, Tomassoni or others but I do believe they are just voting by what their constituants are asking for. As a miner and business owner myself I believe that the number of jobs in the mines have leveled out and pretty much new hires are only because of retirements or people leaving the industry. The mine I work at has the same number of employees as it did when I was hired. In fact, there are actually more employees because they have been hired to maintain the environmental side of the business. The next thing to address is what is referred to as "a few" local hires if a new mine opens. I say that the projection of 300 - 1000 employees plus the additional spin off jobs is more than "a few". So, how many employees have been hired by the "Lifestyle Residents" who claim to have moved up here and added so much to the economy. Maybe you want to mention Piragis or Wintergreen as the success stories. But how many people do they employ and how much do they pay. I tried to get answers from each but they would not say.

I am a miner, I work with miners and I can tell you that we love what we are doing! We make a good salary and yet live up here in this great northland! Because of this we can afford to buy new trucks, FOUR WHEELERS, snowmobiles, side by sides, boats, campers and etc. We like mining and we want it to stay. We are aware of the potential side affects of mining but we still believe it should happen up here where it will be well controlled. As far as risk? This is my back yard and I am willing to risk it. Some see doom and gloom in mining. I see peace and prosperity!

Monday, September 17

Reid Carron

Ivanka Trump and Jared Kushner live in a house owned by one of the Luksics of Antofagasta. That’s corrupt. Agriculture Secretary Sonny Perdue broke his promise to complete the scientific study of the effect of copper mining in the Boundary Waters watershed after Trump and Pence came to Duluth to shill for Stauber (Pence said that “you can take it to the bank” that the mineral withdrawal will be stopped). That’s corrupt. As far as the effect on the Ely economy of the scorned “lifestyle residents,” ask an Ely store owner how her/his business and employees would fare if all of those lifestyle residents, and all the Wilderness travelers and other tourists, suddenly decided that they would spend all their money at SuperOne and Menard’s in Virginia. And as for one’s willingness to take the risk of the devastation that would result from copper mining—What about the people on Birch Lake and the South Kawishiwi who are facing drilling now, with the future prospect of a massive processing plant, pipelines, paste plants, power lines, railroads, roads, lights, noise, and massive waste piles, and almost certainly open pits—Is it possible that maybe they aren’t willing to take the risk? Never mind the millions of people who love the woods and waters of the Boundary Waters and the rest of the SNF. Anybody who thinks that copper mines would come and there would be lots of new people and jobs and everything else would stay the same is not accepting reality. Speculative, clearly oversold mining jobs—to be held by persons unknown in locales unknown (but probably in front of a computer screen in Duluth or St. Paul) are not more important than real, identifiable people in real jobs with real businesses living in real houses right now at the edge of the Boundary Waters. I could introduce you to many of them.

Monday, September 17

Reid Carron

And ask an Ely plumber, or electrician, or lumberyard owner who the majority of his customers are.

Monday, September 17

Scott Atwater

Ask any environmental activist where exactly in the US do they find mining acceptable.

Tuesday, September 18

Reid Carron

That's a particularly aromatic red herring. The question is whether sulfide-ore mining is acceptable (1) in the heart of a national forest that contains 20% of the freshwater in the entire 190 million acre national forest system; (2) at the edge of the nation’s most popular Wilderness Area, where the massive surface destruction and water pollution that would result from such mining would inevitably and irreparably damage the adjoining Wilderness; and (3) where it is obvious to anyone who knows the history of the economics of the mining industry and mining towns—and to every pointy-headed economist who has spent even one minute thinking about it—that it would cause enormous permanent financial loss to the community and its current businesses, workers, and property owners.

Wednesday, September 19

Steve Jacobson

You forgot to mention the 5 million visitors each year, the 2 billion dollars in economy and that 90% of the state is against it.

Wednesday, September 19

Scott Atwater

Aromatic red herring....LOL.

Name one mining operation in the US that you support and approve of.

Thursday, September 20

Steve Jacobson

From the Ely Echo - • Despite the rose-colored glasses and all of the positive spin, it’s clear that Ely needs more well-paying jobs that support families.

No matter what side you fall on in the age-old dispute over mining, there can be no doubt that Ely needs more jobs similar to those rather than those in the service industry.

Service jobs, heck multiple service jobs, could be had by anyone who wanted one in Ely this summer. Many of those positions of course are only temporary and are gone once the snow flies.

It’s clear that isn’t a model for which to build a healthy economy, or one that’s attractive to many who want a sustainable future in Ely.

To grow Ely’s school enrollment, we need more jobs - at small businesses, from entrepreneurs, in government agencies such as the Department of Revenue and yes - even in mining.

It's time for Mr. Carron and his "Lifestyle Residents" to start providing some livable wage jobs he has be bragging about!

Thursday, September 20

Shaking my head...

Took my dog to the vet in Ely on Monday. Ely was absolutely dead. Many businesses closed and for sale. The ‘lifestyle residents ‘ must be among the paltry 150k visitors the BWCA sees every year. I’m guessing about 25% of the visitors are locals. I know the visitors that travel from the twin cities and beyond buy their equipment, food and supplies at home, where it’s cheaper. Gas, a t-shirt and a meal is about Ely gets from canoeing visitors. Hardly enough to support any businesses or a school. We need young families willing and able to move here. Retirees, independently wealthy? Plenty of places they can re-locate to when the mining starts.